Rupee hits more than 1-mth high on yuan move

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By Anurag Joshi

MUMBAI (Reuters) - The rupee rose to its highest in more than a month on Monday, after China's move to allow a gradual appreciation of the yuan lifted major currencies against the dollar.

A stronger domestic stock market also raised expectations of a build-up of capital inflows in the coming weeks. The partially convertible rupee ended at 45.7450/7550 per dollar, 0.9 percent stronger than Friday's close of 46.16/17. It had climbed as high as 45.58 in early trade, its strongest since May 18.

"China's move helped the rupee today, but by tomorrow I see a pullback in the rupee to 45.90/46.0 levels," said a senior dealer with a private bank.

China's central bank said late on Saturday it was ready to make the yuan more flexible, signalling it was ready to scrap its 23-month-old currency peg, citing a global economic recovery and more balanced external trade.

The euro and Australian dollar touched their highest levels in about a month following China's move. The yuan soared on Monday to close at its highest level against the dollar since its July 2005 revaluation.

The index of the dollar against six major currencies was down about 0.3 percent at the time of the close of local trade.

Rise in local shares also lifted sentiment, traders said. The benchmark BSE (^BSESN : 17876.55 +305.73) share index rose 1.7 percent to its best close in nearly 2-½ months, tracking global stock markets, following China's yuan move.

Foreign fund flows into the share market are a key support for the rupee and would be watched for cues, dealers said. So far in June, foreigners have bought shares worth a net $890 million, after dumping around $2 billion in May.

They are net buyers of $5.5 billion so far in 2010.

One-month offshore non-deliverable forward contracts were quoted at 45.48, weaker than the onshore spot rate.

In the currency futures market , the most traded near-month dollar-rupee contracts on the National Stock Exchange (^NSEI : 5353.3 +90.7) and MCX-SX ended at 45.79 and 45.78, respectively, with the total traded volume on the two exchanges at about $7.3 billion.

(Editing by Unnikrishnan Nair)